Broker tips: Chesnara, Rolls Royce
By Iain Gilbert
Date: Friday 29 Aug 2025
(Sharecast News) - Analysts at Berenberg nudged up their target price on UK life and pension consolidator Chesnara from 328p to 333p on Friday following the group's first-half earnings a day earlier.
Chesnara reported £37m H1 cash generation on Thursday, 26% up on H124, a 207% Solvency II ratio, up 203% at its FY24 year-end position, and raised its interim dividend by 3% to 7.7p per share, in line with its annual 3% 20-year DPS growth track record. In addition, Chesnara also updated its guidance for solvency and leverage proforma for the impact of the HSBC Life UK £260m acquisition and for the related financing.
Berenberg, which has a 'buy' rating on the stock, said its new proforma estimates were that Chesnara's leverage ratio would be 25%, down previous guidance of 29%, which excluded the £150m RT1, and that the group's solvency ratio would be 198%.
The German bank updated its forecasts to include the impact of the HSBC Life UK deal and the related financing, stating HSBC Life UK will add over £800m to Chesnara's total cash generation, of which £140m will come in the first five years.
"We estimate that this means that there will clearly be enough cash generation to fund Chesnara's 3% annual DPS growth that we estimate for the next 20 years," said the analysts.
Berenberg added that Chesnara offers an 8.4% FY26 calendar year yield growing at 3% per annum.
"We value Chesnara conservatively on a dividend discount model at 333p per share, and the HSBC UK Life £800m cumulative cash provides comfort that the 3% pa growth is sustainable." it said.
Citi hiked its price target on Rolls-Royce to 1,101p from 641p on Friday, citing three main factors.
The bank, which maintained its 'neutral' rating on the stock, increased its 2025 profit forecast by 23% and 2029 by 28%, while its free cash flow forecasts also increased, up by 13% this year and rising to 20% in 2029.
Citi also pointed to an increased mid-term (2030-34) implicit profit growth assumption from 4% to 8%, broadly in line with expected fleet growth. Finally, it noted around 40p of value for SMR.
"Rolls-Royce may look expensive on profit multiples, but it is in line on cash metrics, which we believe more important," Citi said. "We forecast 12.3% profit compound annual growth rate over 2025 to 2030 and cash conversion peaking at 120% before trending down to 114%, which we use for our valuation."
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